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Summit Trust Co. v. Chichester

Decided As Amended August 8 1989.: June 5, 1989.


On appeal from Superior Court, Chancery Division, Essex County.

Petrella, Shebell and Gruccio. The opinion of the court was delivered by Petrella, P.J.A.D.


Plaintiff, The Summit Trust Company (Summit Trust) instituted a foreclosure action against defendants John and Sally Chichester seeking to foreclose on two mortgages executed in a single "bridge loan"*fn1 transaction between it and defendants. The Chancery Judge granted Summit Trust's motion for summary judgment and ordered that the matter proceed to foreclosure uncontested. Defendants appealed from the grant of summary judgment. A final judgment of foreclosure entered against defendants was stayed pending the outcome of this appeal. Defendants filed an amended notice of appeal to include the judgment of foreclosure.

On appeal defendants argue that Summit Trust's motion for summary judgment should not have been granted because there was a material fact question as to whether it had complied with the disclosure requirements of Regulation Z, 12 C.F.R. 226.1 et seq., as promulgated under the Truth In Lending Act (TILA), 15 U.S.C.A. 1601 et seq. Defendants contend that there is a fact question regarding Summit Trust's compliance with the applicable disclosure requirements. They also argue that the Chancery Judge should have allowed them to rescind the loan transaction under 15 U.S.C.A. 1635 and Regulation Z, 12 C.F.R. 226.23, and thereby void the underlying mortgages. This would preclude Summit Trust from proceeding against defendants by way of a foreclosure action and it would require it to proceed against defendants on an unsecured basis. Summit Trust contends that the right of rescission provisions under the TILA and Regulation Z are not applicable to this particular loan transaction and that, therefore, defendants are not entitled to rescind and thereby void the mortgages.

There are actually no material facts in dispute. In the fall of 1986 defendants decided to purchase and move to a larger home at 10 Thrumont Road, West Caldwell, New Jersey (the new house). They were then residing at 10 Washington Avenue in West Caldwell (the old house). On October 2, 1986 defendants entered into a contract to purchase the new house and paid a deposit of $24,500. The closing date for the purchase was ultimately scheduled for January 19, 1987.

Because defendants had difficulty in selling their old house, and to protect the deposit they had already put down on the new house, they sought a "bridge loan" from Summit Trust. The purpose of the bridge loan was to enable defendants to close on the new house while attempting to sell the old house. It was intended that this loan would be paid back when the old house was eventually sold. Defendants had received a firm mortgage commitment for permanent financing on the new house from Citicorp Homeowners, Inc.

A business associate of Mr. Chichester, a Jack Francis, who apparently maintained a substantial account with Summit Trust, was to co-sign the bridge loan to defendants, secured by a pledge of his assets. During the week of January 12, 1987 various loan documents were signed by defendants and Francis at Summit Trust's Roseland branch office. Chichester was subsequently informed by a representative of Summit Trust that its Millburn office would be handling this loan instead of the Roseland office. After numerous attempts made during that week, defendants were ultimately able to contact the Summit Trust representative who was handling their loan and met with him at the Millburn office on Friday, January 16, 1987.

At that meeting the Summit Trust representative advised defendants that the documents they had previously signed with Francis were "filled out wrong" and that a new set of documents had to be signed by defendants alone. Because the closing on their new house was scheduled for the following Monday, January 19, defendants needed the proceeds of this

loan quickly. They, therefore, signed the loan documents put before them in order to obtain the loan.

The documents signed by defendants on January 16, 1987 included a demand promissory note in the amount of $42,000 payable to Summit Trust in three months. The promissory note obligated defendants to pay $420 per month in interest only for the months of February and March 1987, and required payment of the balance of the interest and principal on or before April 16, 1987. Defendants also signed two mortgage documents which provided collateral to secure the loan; one on defendants' old house and the other on the new house. Each mortgage provided for the foreclosure and sale of the subject properties in the event of default on the note. The note provided that upon default, defined in part as a failure to make any payment when due, Summit Trust could accelerate the loan and demand payment of the entire unpaid balance.

According to defendants, Summit Trust did not provide them with advance notice that they would be required to sign a mortgage on their old house as well as on their new house which they had not yet purchased. Defendants also indicated that they were not provided with advance disclosures of costs or interest rates of the loan nor were they advised of their right to rescind the transaction. Although it may be an open question as to certain of the disclosures it is conceded that Summit Trust had not furnished the disclosure statement, required under the TILA and Regulation Z, to defendants. ...

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